Google’s AdSense and AdWords smart Business Model

We all know Google’s search engine, those who do know more about the industry know that Google really makes most of its revenue from advertisement, but I am not sure if many people are aware of how big that business is for them. People feels more directly in touch by other products like Google Maps, Gmail, YouTube, Chrome or Android, all of them free services. All those products plus some other represent only 4% of the revenues of Google, while the other 96% comes directly from advertising.

How is this good business? It really is. Advertising generated more than $28B last fiscal year for Google, which is the biggest advertisement company in the world. It is that big because its services reach hundreds of millions of people though all those free services we use every day one way or the other. It is all about where we, the consumers, choose to put our attention. That is not easy at all! We are too used to advertisement and we have developed superb skills to ignore the information we did not asked for. When we watch TV we have developed tons of strategies to avoid watching TV commercials, when we drive we chose not to see the billboards, we do not even read the leaflets in our mail box and we just know which e-mails are spam deleting them even before opening them. Potential customers’ attention is the scarcest resource in the advertisement world. And that happened because advertisement is just a pain! …isn’t it?

Or maybe it does not have to be a pain… what if we just get the advertisement we need? If I am planning a trip to Egypt and I am looking for a plane ticket to Cairo next month, I would be grateful to a friend who gives me the 2×1 coupon he got last week. Am I right? The same coupon would be just a piece of trash if I were in a different time of my life or looking for a different destination. How many times are we that lucky? Well, there is where Google’s strategy has been so successful, turning pieces of useless information for some into gold for the right people. That strategy is called: “relevance”.

This strategy has been around for a long time now, but still evolving and expanding tough. Even when this is not new, it is important to understand other parts of Google’s business model. For that reason I want to explain how it works for those that are not familiar with it, include with my thoughts, and why not, add quick test at the end of the post.

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Making the magic happen: AdSense and AdWords

The seller: Designs its campaign using adds in different formats (text, images, videos or interactive ads) and he registers it with Google AdWords “buying” keywords that would best define the product or service they offer.

The customer: Basically, us. We are just users that have a normal Internet life surfing in the Web and searching for what we need to find today. Every time we search for something it is registered and Google can know in what we are interested these days.

Owners of space: These are blogs, any other site that we visit because we are interested in whatever they have to share with us or all the other free Google like maps, YouTube or Android Apps. These guys have our attention and they know the value of their space. Therefore they register with AdSense for text and image ads and Google Display for video and interactive ads, to offer this space and make some revenues out of it.

On back stage, Google matches your interests and the main topic of the search or site you are in with the Keywords bought by the sellers. Using that match and an auction system Google designates which adds you will see in your sponsored search results and in your next visit to a place which has an AdSense/Display space.

This way, Google gets revenues from the sellers leveraging their wide Network and matching algorithm. The space owners get some commission for offering the right space. The sellers achieve a more effective campaign because their ads are exposed to potential customers more likely to be converted than with traditional methods, they only Google pay by click (no by exhibition!) and have tons of analytics tools to target their campaign better. And we, the customers, are most likely to find useful information out from the ads because we already asked for it before.

In my experience, I was truly impressed the first time I saw ads so directed to me. To be honest, at the beginning I felt a bit watched, but if you think about it, it is a great strategy. Technology is making easier and easier to customise products and services, and the fulfilment of individual needs is an important trend. If this algorithm keeps evolving, one day advertising will stop being a necessary evil as it is for many today, and will become a reward for us in exchange of the information we share about ourselves more and more every day.

While that happens, I am adding a couple of ads at the end of this post (just before the comments form) which may be different for each reader according to your last searches. Let me know through your comments… what is Google offering you today?